Financial aid caught in congressional crossfire

02/06/2013

THE WALL STREET JOURNAL. FEBRUARY 5, 2013. Many financial-aid packages that begin going out this month for college students may as well come with a disclaimer: “awards depend on how the fiscal showdown plays out in Washington.”

The automatic spending cuts that had been scheduled to kick in on Jan. 1 included a reduction of 8.2% in federal financial aid, amounting to about $350 million. The fiscal-cliff compromise reached by Congress postponed those cuts until March 1. With many schools sending out award letters in coming weeks, experts say that will leave many parents and college-bound students uncertain about the size of their financial-aid packages—and whether the promised aid will materialize in the fall.

Financial advisers have traditionally recommended that parents compare packages from different schools to determine which one had the lowest out-of-pocket costs. But experts say that makes little sense in this environment, since some colleges are assuming the spending cuts will happen, while others aren’t. If cuts are implemented, some students may find their aid is scaled back after they’ve picked a school.

Experts say colleges with larger endowments or bigger tuition revenues are more likely to use those funds to make up for federal cuts. But most colleges and universities depend on the federal government for financial aid. “If Congress doesn’t come through, students and parents are going to be left in the lurch,” says Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Several colleges have already calculated that cuts, if implemented, would cost some students. Pennsylvania State University, for example, says roughly 375 of its students will completely lose work study—mostly on-campus paid positions largely funded by the government—or the need-based Federal Supplemental Educational Opportunity Grant. Ohio State University says federal aid cuts could reduce funding for those two programs for 500 of its students, though the school says it is looking at ways to fill the gap. The University of Texas at Austin says its students could lose roughly 65 work-study positions.

Congress may also make cuts in the Pell grant, the most popular federal college grant, says Mark Kantrowitz, publisher of FinAid.org, which tracks financial aid and student-loan debt. The Pell grant reached about nine million students in 2011-12, according to FinAid.org.

For now, parents should review financial-aid letters and look for contingency statements or discrepancies in awards (for example, if one school claims the student will receive a federal grant but another school doesn’t). If discrepancies appear, parents should contact the financial-aid offices to find out what assumptions they are making about aid, and what to expect if those assumptions don’t pan out.